The World Bank is planning to issue up to $1 billion in a debut hybrid note on capital markets this year in response to pressure to increase lending. Development banks, including the World Bank, are facing pressure to find new ways to boost their lending capabilities. The G20 group of major economies has urged multilateral lenders to explore hybrid financing structures to maximize balance sheets and increase funding to help developing economies cope with crises such as climate change.
The World Bank would be the second multilateral lender to issue such an instrument after the African Development Bank (AfDB) sold its hybrid capital note in January. The AfDB aimed to establish a new asset class with this deeply subordinated, debt-like equity instrument. George Richardson, director of the capital markets and investment department at the World Bank Treasury, stated that the World Bank is working towards a potential pilot transaction this calendar year. Richardson mentioned that the World Bank is talking to investors about the issue and monitoring market conditions closely.
Richardson noted that the World Bank believes hybrid capital issued by multilateral development banks is a better credit compared to senior, unsecured bonds. He mentioned that current rating agencies’ methodologies may undervalue the creditworthiness of multilateral development banks. Moody’s assigned an AA3 rating to the AfDB hybrid issue, three notches below the bank’s AAA rated bonds. The AfDB hybrid issue traded at 97.6 cents in the dollar on Tuesday, according to LSEG data, below its debut of just over 100 cents in the dollar in early February.